Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	50,000
Accounts receivable		434,240
Raw materials inventory		84,210
Finished goods inventory		368,000
Total current assets		936,450
Equipment, gross		602,000
Accumulated depreciation		(151,000	)
Equipment, net		451,000
Total assets	$	1,387,450
Liabilities and Equity
Accounts payable	$	196,610
Short-term notes payable		12,000
Total current liabilities		208,610
Long-term note payable		505,000
Total liabilities		713,610
Common stock		336,000
Retained earnings		337,840
Total stockholders’ equity		673,840
Total liabilities and equity	$	1,387,450

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

Sales for March total 23,000 units. Forecasted sales in units are as follows: April, 23,000; May, 15,300; June, 20,400; and July, 23,000. Sales of 241,000 units are forecasted for the entire year. The product’s selling price is $23.60 per unit and its total product cost is $20.00 per unit.

Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,210 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,100 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.

Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 18,400 units, which complies with the policy.

Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.80 per direct labor hour. Depreciation of $21,520 per month is treated as fixed factory overhead.

Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,100.

Monthly general and administrative expenses include $13,000 administrative salaries and 0.5% monthly interest on the long-term note payable.

The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).

All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.

The minimum ending cash balance for all months is $41,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

Dividends of $11,000 are to be declared and paid in May.

No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.

Equipment purchases of $131,000 are budgeted for the last day of June.

Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.

Answer 1

Answer:
Requirement 1	Sales Budget
		Unit	Unit Price	Total
	April	23000	$                                     23.60	$             542,800.00	(23000*23.60)
	May	15300	$                                     23.60	$             361,080.00	(15300*23.60)
	June	20400	$                                     23.60	$             481,440.00	(20400*23.60)
	Total	58700	$                                     23.60	$          1,385,320.00
Requirement 2	Production Budget
		April	May	June
	Budgeted Sales	23,000	15,300	20,400	23000
	Add: Ending Inventory 80% of next month Sales	12,240	16,320	18,400	(23000*80%)
	Total needs	35,240	31,620	38,800
	Less: Beginning inventory	18,400	12,240	16,320
	Units required for production	16,840	19,380	22,480
Requirement 3	Raw materials Budget
		April	May	June
a	Budgeted Production	16,840	19,380	22,480
b	Raw material per unit	0.50	0.50	0.50
c=a*b	Required raw material	8,420	9,690	11,240
	Add: Ending raw material inventory 50% of next onth Sales	4,845	5,620	4,100
	Total needs	13,265	15,310	15,340
	Less: Beginning raw material inventory	4,210	4,845	5,620
d	Raw material requirement	9,055	10,465	9,720
e	Rate per unit	$                      20.00	$                                     20.00	$                        20.00
d*e	Total raw material in dollars	$           181,100.00	$                          209,300.00	$             194,400.00
Requirement 4	Direct labour budget
		April	May	June
a	Budgeted Sales	23,000	15,300	20,400
b	Required labour per unit	0.50	0.50	0.50
c=a*b	Labour hours required	11,500	7,650	10,200
d	Rate per Hour	$                      15.00	$                                     15.00	$                        15.00
e=c*d	Total labour $	$           172,500.00	$                          114,750.00	$             153,000.00